[Note: This was supposed to get posted yesterday, but WordPress was on the fritz, so it’s up today. Also, suck it, Czar]
“Who’d Want to Limit Retirement Plans? House Republicans.” Or so says the New York Times, implying there can be no principled opposition to the benevolent state.
Here’s the background. Liberal states decided their citizens needed what amounts to state mandated retirement plans. States would tax citizens’ paychecks in some as yet undetermined amount. States say citizens would have the right to opt out. States would then give the funds to private managers to manage. Federal law prevents states from doing so. The ever-helpful Obama administration crammed through a rule as it was drawing its last breath freeing states to offer such plans.
So who’d want to limit retirement plans? ‘Puter would, because we’re not talking about limiting retirement plans. We’re talking about preventing state governments from grabbing large chunks of cash from citizens and managing the funds themselves. Sure, states say they’ll give the cash private fund managers, but the states will select those managers, and will select the individual funds offered to its citizens. It’s yet another opportunity for state employee graft, scandal, and corruption!
Look, if you think states are competent managers of retirement funds, ‘Puter invites you to look at the Illinois and California pension systems. Both are massively underfunded and in danger of collapse. Yep. These are the financial geniuses we want running our retirement funds.
Illinois’ pension system is underfunded by at least $203 billion. Illinois currently has enough cash in its pension funds to meet 37.6% of promised future benefits, which number is calculated using a completely unrealistic assumed rate of return. Illinois also has some super-great (THE HUGEST!) investment advisors. Illinois’ best and brightest knocked the cover off the ball, earning a massive negative 1.0% return in 2016 for the General Assembly Retirement system and a whopping 0.2% return for the State Universities Retirement System.
For comparison’s sake, if the states had just bought index funds from Vanguard in 2016, it could’ve earned 9.5% (S&P 500) or 13.4% (DJIA) or 7.5 (NASDAQ) or 19.5% (Russell 2000).
“But pension funds really shouldn’t be in risky, bad, evil, stocks, ‘Puter! They should be in the warm, safe embrace of mother government’s bonds!”
Fine. Morningstar says long term bonds returned 3.40% in the year prior to February 14, 2017. Inflation protected bonds earned 4.61%, and short term bonds earned 2.43%. Corporate bonds earned 7.75%. Just saying. The only losers among bonds were government bonds, with long government bonds losing 6.27%, intermediate government bonds losing 0.61%, and short government bonds losing a mere 0.12%. Government bonds underperforming? Unpossible!
Not to be outdone, California’s pension system looked at Illinois’ dumpster fire and said, “Here, hold my beer.” California’s pension system is (as of 2014) underfunded by $241.3 billion, and it’s also got another $125 billion in unfunded retiree healthcare costs. There’s an estimate that if California were required to assume a 4% rate of return on funds, as nearly all private pensions are required to do, California’s pensions would be underfunded by $1 trillion. Let’s also note that CalPERS, the state’s largest pension fund, earned a whopping 2.4% in 2014-2015, and an even more awesomer 0.4% in 2015-2016. California probably could’ve earned better returns picking investments by using cow pie bingo as the decision maker.
But back to the main point. State run pension plans for private employees. WE DON’T NEED THEM. PEOPLE CAN ALREADY SET UP, FUND, AND MANAGE THEIR OWN PENSIONS. Anyone who wants to can set up an IRA for retirement.* The fact many choose not to do so isn’t the state’s business. People can make rational (or irrational) choices to use their money differently. Starting a business or sending one’s kids to private school spring to mind. This is nothing more than states saying to middle and low income taxpayers “you’re too stupid to know what’s good for you, so we’ll spend your money for you, cretins.”
There’s also Social Security, America’s Inviolate Nationwide Ponzi Scheme Insurance Policy Pension Plan, for which nearly all Americans are eligible. Leaving aside (1) Social Security is not a frikkin’ pension, it’s an insurance plan and (2) Congress already spent all the money taxed for Social Security, Americans already have access to the pension plan states seek to recreate.
States have proven themselves incompetent managers of public pensions. Why should we assume they’ll do a better job with private ones? And further, why should we assume the state knows what’s best for us and our money? Sure, we can opt out, but that’s just about as valuable as the “you don’t have to join the union, but you have to pay this agency fee which coincidentally equals the amount of union dues you’d otherwise be paying” closed-shop public union horse crap. This is nothing more than another power and money grab by state government masquerading as a feel-good program.
So, New York Times editors, there are good reasons to oppose state managed retirement funds. You just choose to ignore them in order to push your preferred big government at all costs narrative.
* There are limits to IRA participation, but most of them are based on high incomes, which is not the purpose of this experiment targeted at middle and low income citizens.